From soaring condo towers to vacant lots, real estate development projects across Canada are facing increasing financial stress. The combination of rising interest rates, construction costs, and a slower real estate market has led to a surge in receiverships, where secured lenders seek court-appointed control over properties to either liquidate them or maximize their value.
"It used to be a rare occurrence, but now we receive calls about receiverships almost every week," says Mike Czestochowski, vice-chair of real estate company CBRE's land services group. The growing number of receiverships is primarily seen in larger construction projects with multiple mortgages and stakeholders.
These projects often face financial difficulties due to unexpected price hikes, causing them to run out of funds. Lauren White, executive vice-president of CBRE's land services group, cites the case of the Elevate Condominiums project in Kitchener, Ontario, where construction abruptly halted with the site 80% complete but not weather-sealed. The project's owners had only $300 in the bank when receivership was filed, coupled with over $100 million in debt.
However, not all projects reach the construction stage before facing financial distress. Creditors recently filed for receivership on a planned 55-storey condo tower in downtown Vancouver, demanding repayment of over $82 million in loans. Another example is the Mizrahi Inc. condo project at 128 Hazelton Ave. in Toronto, where a financial institution filed an application seeking repayment of a $16-million loan.
While larger developers can still secure funding, smaller ones are struggling to obtain additional financing as second-tier lenders become more cautious. Ontario has witnessed the majority of receiverships in recent months, but the trend extends nationwide. From a historic bank building in Saint John, New Brunswick, to a fire-plagued apartment in Winnipeg, all types of properties are affected.
High-rise buildings face particularly significant challenges, as they often involve complex development processes and potential delays. The One, an 84-storey building in Toronto developed by Mizrahi Inc., is a high-profile project that has faced receivership. The development is expected to finish over two years late and exceed its budget by more than $600 million.
Receivership is an extreme legal relief available to secured creditors when borrowers default on their loans. The primary goal is to maximize the value of the project, whether by completing it with the existing developer or selling it as-is. Lenders typically attempt to work with borrowers before resorting to receivership, but missed payments and increasing debt often lead to this outcome.
Receivership applications are not always approved, as seen when a B.C. judge denied a request to put Coromandel Group into receivership due to some properties already being in receivership. When approved, receivers assess the cost of completing the project and compare it to the expected revenue from unit sales. If there is a shortfall due to unforeseen costs, drastic actions such as terminating pre-sale condo purchase agreements may be necessary.
Deviation from the original project design is also possible, such as transforming a condo project into a retirement home or a student residence. However, buyers may be faced with the choice of paying more for their units, while developers struggle to sell units in a quieter market.
Despite the challenges, the real estate market is still active, with interest in potential receivership sales. However, experts predict that it will take at least another six months for the market to recover fully.
